INTERACTIVE MEDIA & MARKETING;HOLIDAY BOOM OR '96 BUST?;CD-ROM MARKETERS PUSH FOR ONLINE LINKS IN 4TH-QUARTER DISCS

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If you can't beat 'em, join 'em.

That's becoming the philosophy of the CD-ROM industry, which has spent the better part of this year in the shadow of the Internet's overwhelming hype.

As the all-important holiday season approaches, the discs that have the best chances of success will link to online services or the Internet.

"The Internet is definitely the direction in which things are going," said David Ludlum, an analyst with Link Resources, New York.

The Internet can provide real-time updates and communications capabilities for CD-ROMs, although a lack of bandwidth will slow its encroachment into the CD-ROM business for at least five years, Mr. Ludlum said.

Consumer sales of CD-ROM discs are expected to more than double to $1.9 billion this year, from $910 million in 1994, according to Infotech, Woodstock, Vt.

Much of that business will be done during the holiday season, which is fast turning into prime time for consumers to stock their shelves.

To spur demand, CD-ROM publishers are dropping prices by as much as 50%. At the same time, these cheaper titles are becoming more common in mass-market stores such as Kmart and Wal-Mart.

But distribution outlets are not expanding quickly enough to accommodate the surge of titles for the holidays. As a result, smaller companies, with less leverage on retailers, will lose out.

"It's a slugfest out there," said Bill Perrault, VP-worldwide sales and marketing for Compton's New Media, a division of Tribune Co. "There will probably be some disappointed companies this season."

Larger outfits with 10 or more titles-such as Compton's-have the necessary influence to gain retailers' cooperation, while smaller ones could be left out in the December cold, said Daniel Tynan, editor in chief of CD-ROM Today.

"Good titles are going to be lost because of shelf overcrowding," Mr. Tynan said.

As a result, the Christmas boom will be a New Year's bust for some companies as an estimated 1,800 titles vie for consumers' attention.

Some traditional media companies that had big plans for using CD-ROMs are rethinking that strategy.

"We see the CD-ROM as an interim technology," said Paul Sagan, senior VP at Time Inc. New Media, noting that the economics just aren't that attractive for CD-ROM production and distribution.

Time Warner this quarter will release "Endorfun," a simple puzzle requiring players to move a cube around a grid. While doing so, the game produces a pulsating 3-D light show set to world beat music laced with subliminal positive messages.

Hearst Corp. will cross-promote CD-ROM hybrids such as its "Comic Creators" disc through its Web sites.

But the company is still hoping CD-ROMs will be a significant part of its interactive business.

"It's not time to throw out the pieces of the new-media puzzle," said Brian Sroub, VP-marketing at Hearst New Media & Technology.

The tough times for some companies do not spell doom for the entire industry, said Josh Bernoff, a senior analyst with Forrester Research in Cambridge, Mass.

"You'll see 1995 shake out some of the weaker players, but 1996 will bring big advances for the market," he said. An expanding base of computers with CD-ROM drives, technical innovations and improved content will help the restructured industry continue its growth through next year. The use of technical innovations such as CD-ROMs with online links, or hybrids, will peak during the next few months.

The industry's biggest player, Microsoft Corp., for example, will feature online links in most of its reference titles this season. One Microsoft offering for the holidays, "Music Central '96," will offer text, music tracks and video clips for 60,000 titles. It includes an option for a subscription-based online service, which will provide consumers with updates on the latest recordings and artists.

Other companies are using online links to make games more compelling. Papyrus Design Group has already released its "Nascar Racing" but plans a version in time for the holidays that would allow players to compete with each other over a proprietary network for up to $12 an hour.

Regardless of technical developments in the CD-ROM industry, Mason Woodbury, VP-marketing service for Broderbund Corp. said his company's focus will still be on what he called the big E's: entertainment and education.

Broderbund, producer of the hit game "Myst," will place its bets this season on another intellectual thriller called "In the 1st Degree"-a courtroom drama in which the player takes on the role of the prosecution and tries to obtain a first-degree murder conviction.

The software marketer is also launching its "Active Minds" series of educational CD-ROMs created for 5-to-8-year-olds.

Like Mr. Woodbury, CD-ROM Today's Mr. Tynan contends there's still plenty of room in the industry for fun and games.

"Most of the titles out there are still for people with fast thumbs that are interested in blowing up things on a regular basis," he said.

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